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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: COMMISSION FILE NUMBER:
DECEMBER 31, 1998 0-21092
OCTuS, INC.
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-0013439
------------------------------- ----------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
600 "B" STREET 18TH FLOOR
SAN DIEGO, CA 92101
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(619) 446-2107
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: UNITS
CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE WARRANT TO PURCHASE
COMMON STOCK (TITLE OF CLASS)
INDICATE BY CHECK MARK WHETHER THE ISSUER (1) HAS FILED ALL REPORTS
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) YES [X] NO [ ] (2) YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained in this Form, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
Issuer's revenue for the most recent fiscal year: $9,800
The aggregate market value of the voting stock held by nonaffiliates of the
Issuer: $130,925 as of March 31, 1999.
The number of shares outstanding of each of the Issuer's class of common stock,
as of the close of the period covered by this report:
Class: Common Stock, No Par Value
Outstanding at December 31, 1998: 4,223,390 shares
Class: Series C Preferred
Outstanding at December 31, 1998: 250,000 shares
Documents Incorporated by Reference: None.
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
INTRODUCTION
OCTuS, Inc. (the "Company" or "OCTuS") was incorporated in October 1983
under the laws of the State of California. In December 1991, in connection with
its shift in focus from the laser printer to the computer-telephone integration
market, the Company's name was changed from Office Automation Systems, Inc. to
OCTuS, Inc. In January 1993, the Company completed an initial public offering of
2,000,000 units each consisting of one share of Common Stock and one Warrant to
purchase one share of Common Stock. The Company's Common Stock (OCTS), Warrants
(OCTSW) and Units (OCTSU) are currently traded on the OTC Bulletin Board.
The core of the Company's technology from its inception until 1991 was
comprised of software for use in controllers for laser printers and related
imaging devices. The Company incorporated this technology into its own
LaserPro(R) laser printer products and also licensed the technology to third
parties. In 1991, because of low margins and competition, the Company shifted
its primary focus from laser printer controller technology to the development of
the OCTuS PTA product line.
From 1991 to early 1995, the Company was engaged primarily in the design
and development of computer software and associated hardware products focused on
the integration of the personal computer and the telephone. During that time,
the Company has developed a software product called OCTuS PTA(TM) ("Personal
Telephone Assistant"), which incorporates a Microsoft Windows(TM) graphical user
interface ("GUI") and enables users to operate and integrate telecommunications,
facsimile transmission and receipt, telephone and personal voice mail from a
desktop or portable computer using the "point and click" of a hand-held mouse.
The Company shipped the first retail version of OCTuS PTA in December 1993.
In March 1995, the Company engaged a third-party distributor, Cintech
Tele-Management Systems, Inc. ("Cintech") to exclusively manufacture, distribute
and sell the retail version of OCTuS PTA in North America. Upon execution of the
Cintech agreement in March 1995, the Company shifted its focus to a plan of
pursuing licensing of the components of OCTuS PTA to third parties for use in
their respective products. However, no such agreements have been entered into to
date and there can be no assurance that any such agreements will generate
sufficient revenue to sustain the Company's business operations. In March 1997,
Cintech elected not to renew its license to distribute OCTuS PTA. However,
Cintech has stated in its public releases that it intends to use the OCTuS
technology with Cintech proprietary products
On September 5, 1995, the Company entered into a product development and
license agreement with Ascom Telecommunications Limited ("Ascom") of the United
Kingdom. The agreement provides Ascom with an exclusive license to manufacture
and sell to distributors, resellers and end users in Europe a special version of
OCTuS PTA that has been modified to operate through the personal computer's
serial port with Ascom's proprietary telephone. Said exclusivity shall continue
for so long as Ascom sells or otherwise pays OCTuS a specified minimum royalty
on a quarterly basis. The agreement provides that Ascom shall pay the Company a
total of $65,000 for the required modifications to the standard OCTuS PTA
product.
Although the Company has received $65,000 from Ascom as payment for the
required modifications to the standard OCTuS PTA program, on March 10, 1998,
Ascom terminated the Company's contract. The loss of this contract, the
Company's only contract for the OCTuS PTA software, seriously impairs the
ability of the company to sustain operations, and forces the Company to seek
alternative business opportunities. As of this date, the Company is actively
seeking such alternative business opportunities, which may include outright sale
of the OCTuS PTA software rights, acquisition of other software products, or
acquisition of some other technology. Although the Company is seeking such
opportunities, it is unlikely that the Company will be able to consummate any
such transaction, which would generate sufficient revenues to sustain the
Company's operations. Additional capital will likely have to come from issuing
additional equity interest, which can not happen without dramatically diluting
the existing equity ownership of the Company's Common stockholders.
OVERVIEW OF THE COMPUTER-TELEPHONY INTEGRATION MARKET
OCTuS PTA was one of the first products in the market that fully
integrates telephone communications with the personal computer. The public first
began to gain awareness of computer telephone integration ("CTI"), in 1993. Due
to lack of sufficient cash resources, the Company's ability to become a
recognized name in the CTI field has been limited.
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Market for the OCTuS PTA Product. OCTuS PTA is currently designed for
the Small-Office/Home Office ("SOHO") markets as well as individuals and
departments in larger organizations. It is suitable for anyone using analog
telephone lines and personal computers with an Intel 386 (or better)
microprocessor running Microsoft(R) Windows(TM) 3.1 and greater (including
Windows 95(TM)) and at least eight megabytes of memory. The Company believes
that a significant number of business telephone lines provided by the Regional
Bell Operating Companies ("RBOCs") are analog business lines that are compatible
with OCTuS PTA; in addition, many of these lines have advanced (Centrex(R))
features supported by OCTuS PTA.
OCTuS PTA is compatible with computer systems that share resources on
Local Area Networks ("LANs"); however, it does not provide for a LAN-based,
shared-data structure. The Company does not plan to develop a LAN-based version
of OCTuS PTA due to lack of sufficient cash resources.
OCTUS PTA
OCTuS PTA Computer Telephone Integration. OCTuS PTA was one of the first
products to fully integrate telephone communications with the personal computer.
The product replaces some of the many traditional desktop tools frequently used
by managers and professionals, such as a name and address book; fax machine;
answering machine; advanced feature phone, and speed dialer with one integrated
system that operates with familiar "point and click" mouse commands. The product
is designed to work with Centrex(R) telephone service as well as standard
business/residential telephone lines, and other analog lines utilizing a Private
Branch Exchange ("PBX").
OCTuS PTA, which is accessible from within any Microsoft Windows
application, permits users (who have installed the appropriate hardware devices
in their personal computer system) to use their hand-held mouse to visually
select icons on their computer screen (depending on the features provided by
their telephone service) to place and receive calls, transfer, forward and
pick-up calls, access OCTuS PTA voice mail, place conference calls, record
messages and notes, send and receive faxes (even while talking, if a separate
fax line version is available), review contact histories, and access an
integrated address book.
The Company believes that one of the unique strengths of the product is
its incoming call processing capabilities. OCTuS PTA provides a "pop-up" message
with a button bar that allows the user to decide how to respond to the call. The
user may select from several options, including forwarding the call to OCTuS
PTA's voice mail, having OCTuS PTA play and/or take a message; putting the
caller on hold after OCTuS PTA plays a user-recorded message; going directly
into OCTuS PTA to review notes from earlier calls, or simply answering the call.
The call may be answered by lifting the handset or by clicking on the on-screen
"Answer" button in the pop-up message and using a speakerphone
If Caller ID is available, OCTuS PTA can also display caller information
supplied by the user's telephone company. If the caller's name and number was
previously entered in the user's OCTuS PTA address book database, OCTuS PTA will
automatically display the contact history while the phone is still ringing. This
"soft interrupt" is designed to improve worker productivity by selectively
allowing less important calls to be answered automatically and then returned at
a more convenient time.
The Company accomplishes the physical connection between the personal
computer and the telephone in the current OCTuS PTA product by using a
proprietary external PC-telephone interface, the OCTuLINK(TM). The OCTuLINK
connects to the parallel port on the user's personal computer and contains jacks
for the connection with a sound card (required for full voice and messaging
capability). The OCTuLINK's "pass-through" design allows the user to connect a
printer to one end of the OCTuLINK, and print and do call control
simultaneously.
STRATEGIC ALLIANCES AND MARKET RECEPTION
The Company's initial marketing plan had focused on developing strategic
relationships with certain RBOC's to further developing its OCTuS PTA line of
products with a view to having its products distributed by the RBOCs. To that
end, the Company reached marketing agreements with Pacific Bell and Bell
Atlantic.
However, in May 1995, Pacific Bell released the Company from all
remaining obligations to deliver OCTuS PTA units to its customers under its
product delivery agreement. In addition, none of the other foregoing agreements
have generated significant revenue to date and are not expected to provide
revenue at levels sufficient to sustain the operations of the Company. Although
several companies have expressed an interest in licensing the Company's
technology and the Company has actively pursued such leads, it is unlikely that
any such licensing arrangements, which would render sufficient revenues to
sustain the Company's operations, will be entered into.
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GENERAL DISTRIBUTION STRATEGY
Retail Distribution of OCTuS PTA. In March 1995, the Company entered
into a distribution agreement with Cintech Tele-Management Systems ("Cintech")
of Cincinnati, Ohio whereby Cintech acquired the exclusive rights, upon payment
of a per unit royalty, to distribute the retail version of OCTuS PTA (with the
OCTuLINK) in North America. Under the agreement, the product would be
manufactured, sold and supported by Cintech through its direct sales force and
extensive reseller network in the United States and Canada. However, in March of
1997, Cintech elected not to renew its agreement. Currently, the Company has no
plans for or resources to enable it to conduct retail distribution of the OCTuS
product in the United States or elsewhere.
Distribution through OEM's. Following the execution of the Cintech
agreement, the Company began to focus its efforts on the licensing of OCTuS PTA
and the OCTuLINK to original equipment manufacturers ("OEMs") in the
telecommunications and computer industries for use in their respective products.
Several companies have expressed an interest in licensing part or all of the
product and the Company is actively pursuing further discussions with such
companies. However, it is unlikely that any such agreements will be executed, or
that they will generate revenues at levels sufficient to sustain the operations
of the Company.
COMPETITION
The desktop computer telephony market is highly competitive and rapidly
changing. The Company expects competition to become more intense as the market
grows and matures.
Companies with products similar to OCTuS PTA have developed different
market strategies and technological thrusts. The strategic points of
differentiation among competitive products are the type of telecommunications
and computer hardware on which the product operates, the ability of the product
to operate on a local area network ("LAN") as well as for single users, and
software features.
In addition, some or all of these competitors have capital, name
recognition and financial, personnel, and other resources substantially greater
than those of the Company. The success of the Company's product in the
marketplace will depend upon the success of the third party licensees in
marketing the product, as well as how well the product's features,
price/performance, technology, and reliability compares with that of the
competition. It is unlikely that the Company, in light of its limited financial
resources, will be able to continue research and development to keep the product
competitive.
EMPLOYEES
The Company did not add to its workforce during the year ended December
31, 1998; as of March 31, 1999, the Company had one employee, President John C.
Belden, who is based at the Company's San Diego, California headquarters. In
1997, the Company also engaged three former employees as independent contractors
from time to time to provide it with assistance in various areas (including
research and development) on an "as needed" basis. See "Factors Which May Affect
Future Results" - "Restructuring of Operations."
ITEM 1a. FACTORS THAT MAY AFFECT FUTURE RESULTS
HISTORY OF OPERATING LOSSES
For the calendar year ended December 31, 1998, the Company recorded a
loss of $220,223. For the calendar year ended December 31 1997, the Company
recorded a loss of $219,101.
At December 31, 1998, the Company had no tangible assets, no working
capital, an accumulated deficit of $22,698,182 and a shareholders' deficit of
$580,605. With both the Cintech and the Ascom transactions terminated, and due
to the absence of a significant level of sales of the Company's products, either
as stand-alone retail units or incorporated into third party products, the
Company will continue to generate significant losses. It is unlikely that the
Company's existing operations will be successful or will be profitable in the
future.
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NEED FOR ADDITIONAL CAPITAL
The Company's cash on hand as of March 31, 1999 was $269, which is
inadequate to meet the Company's budgeted operating requirements. Additional
cash resources are required to sustain the Company's operations unless adequate
revenues from sales and licensing of the Company's OCTuS PTA product line
develop, of which there can be no assurance. While operations to date have been
funded by loans from Advanced Technologies International, LTD, one of the
Company's principal shareholders, it should be noted that the Company has no
commitment from any party to provide additional capital and there is no
assurance that such funding will be available when needed or, if available, that
its terms will be favorable or acceptable to the Company. Should the Company be
unable to obtain additional capital when and as needed, it could be forced to
cease business activities altogether. It is unlikely that the Company will be
able to raise additional capital without dramatically diluting the existing
equity ownership of the Company's Common stockholders. As of March 1999, ATI is
in bankruptcy proceedings and unable to provide additional funds to the Company.
RESTRUCTURING OF OPERATIONS
The Company underwent substantial restructuring in 1994 and 1995,
primarily as a result of continued operating losses. This restructuring included
a substantial reduction in the Company's workforce from 46 employees (as of
March 31, 1994) to one employee (as of July 1, 1997) as well as relocation of
its headquarters to another facility with lower operating costs. In addition,
Ray M. Healy became the Company's President and Chief Executive Officer in
November 1994. However, Mr. Healy resigned as the Company's President and Chief
Executive Officer on May 31, 1995 in order to pursue other opportunities and Mr.
Belden was re-appointed to that position. Mr. Belden is the sole remaining
executive officer of the Company. Mr. Donald O. Aldridge, a director of the
Company since June 1995, was appointed Chairman of the Board of the Company in
October 1995. In June 1996, the Company sold to ATI 250,000 shares of Series C
Preferred Stock (which votes with the Company's Common Stock with each share of
Series C Preferred Stock having ten votes) for $151,000 and issued warrants to
purchase up to an additional 3,000,000 shares of the Company's Common Stock at
an exercise price according to the following schedule: $0.43 per share for the
first 1,000,000 shares, $0.50 per share for the second 1,000,000 shares, and
$0.75 per share for the final 1,000,000 shares. Mr. Aldridge resigned from the
board in October 1998 and was replaced by Mr. Ronald A. Newcomb in December 1998
who has served as Chairman of the Board since that time.
Although this restructuring effected a major reduction in the Company's
operating expenses, the Company's cash on hand continues to be insufficient to
meet its present operating expenses. Without a substantial increase in revenues,
which is unlikely, the Company will be required to cease its business operations
altogether.
NEED FOR PRODUCT ACCEPTANCE
The Company's ability to complete the development and testing of future
revisions and/or improvements to OCTuS PTA is uncertain due to lack of
sufficient financial resources. As such, there is no assurance that the
Company's testing and development schedules for such future versions will ever
be met. The Company's inability to complete such development and testing could
have a material adverse effect on the Company's financial condition and results
of operations, and could raise questions as to the Company's ability to continue
as a going concern.
In addition, because the computer industry is characterized by rapid
technological change, there can be no assurance that the Company's products will
not be rendered obsolete as a result of technological developments before or
after their introduction. The Company's limited resources has impaired the
Company's ability to quickly introduce its new products, continually improve
such products and develop other products in order to compete effectively in this
industry. Accordingly, it is unlikely that the Company will be able to complete
the development of such new products or improvements on a timely basis, if at
all.
MARKETING/DEPENDENCE ON OTHERS FOR DISTRIBUTION
In order to generate significant revenues from OCTuS PTA, the Company
must successfully implement a program to license the product to companies in the
personal computer and telecommunications industry for incorporation into their
respective products. Due to the limited funds available to the Company, it is
unlikely that the Company will be able to succeed in such a program.
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DEPENDENCE ON THIRD PARTY SOFTWARE
The Company's products are designed for use with Microsoft(R)
Windows(TM). Although the product functions with Windows 95, the Company will
likely have to revise its product for use with newer versions of that product as
well as for each different combination of computers and telephone systems. In
addition, since the Company's products operate in conjunction with these other
operating systems and applications, changes to such systems will require the
Company to adapt its products accordingly. The Company's ability to perform such
ongoing development has been impaired by its present financial condition and it
is unlikely that the Company will be capable of conducting any such
improvements, which could affect the Company's ability to continue as a going
concern. Further, the rapid pace of hardware platform advances and the inability
of the Company to update the OCTuS PTA software to meet such new hardware
standards significantly hinder the software's compatibility with new computers
sold today. It is therefore unlikely that the Company will be able to upgrade
the OCTuS PTA software to insure compatibility with today's and future computing
platforms.
HIGHLY COMPETITIVE INDUSTRY
The computer industry is highly competitive and rapidly changing. There
are other companies that are engaged in marketing and development of products
similar to certain of the Company's products that employ similar technologies
that directly compete or could compete with the remainder of the Company's
products. Many of these competitors have significantly greater financial,
technical, manufacturing, and marketing resources and greater name recognition
than the Company. The Company believes that due to the nonproprietary nature of
its products and the relatively low barriers to entry to its markets that,
unless it establishes a significant installed base before its competitors, the
Company will not have any sustainable long-term advantage over its competitors.
The Company believes that its ability to compete depends on elements both within
and outside its control, including the success and timing of new product
development by the Company and its competitors, product performance and price,
productivity enhancement, distribution and customer support. Given its limited
resources, it is unlikely that the Company will be able to compete successfully
with respect to these factors or others.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. The Company
presently believes that its existing computer programs do not have
date-sensitive software that may recognize a date using "00" as the year 1900
rather than the year 2000.
Based on a recent assessment, the Company has determined it has no
exposure to contingencies related to the Year 2000 Issue for the products it has
sold.
INTELLECTUAL PROPERTY
The Company generally relies on confidentiality agreements with its
employees and consultants to protect its proprietary information. There is no
assurance that existing or future patents, copyrights, trademarks and
confidentiality agreements will afford protection from material infringement.
There is also no assurance that the Company's technologies and products will not
infringe upon patents or copyrights of others. Management of the Company
believes that because of the rapid pace of technological change in its industry,
patent and copyright protection is less significant than the ability of the
Company to develop and market new products.
GENERAL ECONOMIC AND MARKET CONDITIONS
Demand for the Company's products depends largely upon the overall
demand for computer and communications products. Demand for such products
fluctuates from time to time based on numerous factors, including capital
spending levels and general economic conditions. There is no assurance that
there will not be a decline in overall demand for computer and communications
products as a result of general economic conditions or otherwise, and any such
decline could have a material adverse effect on the Company's business.
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TRANSACTIONS WITH AFFILIATES
The Company has been a party to certain transactions with related
persons and affiliates. The Company believes that all such transactions were in
its best interests and on terms no less favorable to the Company than could have
been obtained from unaffiliated third parties and each transaction was approved
by disinterested and independent members of the Board of Directors. However,
such agreements were not always reached as the result of arms-length
negotiations. In June 1996, the Company sold to Advanced Technologies
International, Ltd. ("ATI") 250,000 shares of Series C Preferred stock (which
votes with the Common Stock with each share of Series C Preferred Stock having
ten votes) for $151,000 and issued warrants to purchase up to an additional
3,000,000 shares of the Company's Common Stock at an initial exercise price of
$0.43 per share. The Company had been meeting its additional liquidity needs
through loans from ATI until August 1998 when ATI ceased funding the Company and
subsequently declared bankruptcy. Smith Technology Development, LLC during 1999
through a bankruptcy purchase agreement, acquired the note, stock and warrants.
Subsequently, during 2000, the note, stock and warrants were transferred in a
sale to two independent foreign entities. The loan balance, $426,511 as of
December 31, 1998, had been increasing at approximately $15,000 per month until
August 1998 when ATI ceased funding the Company. The Company accrues 10.0%
simple interest on such loan and the loan is due within five (5) days of the
Company's receiving sufficient funds from the exercise of warrants. Should the
Company be unable to obtain additional revenues, which is unlikely, and/or raise
additional capital, it could be forced to cease business activities altogether.
NOTES AND ADVANCES PAYABLE
On December 1, 1995, Maroon Bells Capital Partners, Inc. (Note 4)
advanced $25,000 to the Company for working capital purposes. The note bears
interest at 8% and was due with accrued interest on November 30, 1997.
Additionally, the note may be converted at any time into shares of the Company's
Common Stock at the rate of $.25 per share. The note also contains certain
acceleration and anti-dilution clauses upon conversion. Maroon Bells was also
granted 25,000 warrants with a nominal fair market value, to purchase the
Company's Common Stock at a price per share of $.25. The warrants are for a
five-year period. The note was paid in full on March 3, 1998.
The Company currently had been meeting its additional liquidity needs
through loans from ATI. The loan balance, $426,511 as of December 31, 1998, had
been increasing at approximately $15,000 per month until August 1998 when ATI
ceased funding the Company and subsequently declared bankruptcy. Smith
Technology Development, LLC during 1999 through a bankruptcy purchase agreement,
acquired the note, stock and warrants. Subsequently, during 2000, the note,
stock and warrants were transferred in a sale to two independent foreign
entities. The Company accrues 10.0% simple interest on such loan and the loan is
due within five (5) days of the Company's receiving sufficient funds from the
exercise of warrants.
TRADING MARKET/DELISTING FROM NASDAQ SMALLCAP MARKET/VOLATILITY OF STOCK
PRICE
In January 1993, the Company completed an initial public offering of
2,000,000 Units, each unit comprised of one share of Common Stock and one Common
Stock Purchase Warrant. These securities were quoted on the Nasdaq SmallCap
Market until February 1, 1995, at which time they were delisted due to the
Company's inability to meet that market's minimum capital and surplus
requirements. Since February 1, 1995, the Company's securities have been traded
on the OTC Bulletin Board. The Company's securities now trade on the "pink
sheets", which are generally considered to be less efficient markets. While the
Company intends to reapply for listing on the Nasdaq SmallCap Market if
conditions are favorable for it to do so, there can be no assurance that the
Company's securities will be accepted by the Nasdaq SmallCap Market upon
application by the Company for relisting.
The market price of the Common Stock, Units, and Warrants, like that of
the securities of many other high technology companies, has been highly
volatile. Factors such as fluctuation in the Company's operating results,
announcements of technological innovations or new products by the Company or its
competitors, developments in the Company's strategic alliances with other
companies, and general market conditions may have a significant effect on the
market price of the Common Stock. See table in Part II, Item 5, "Market for
Common Equity and Related Stockholder Matters."
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Common Stock in the public market
could have an adverse effect on the price of the publicly-traded Common Stock
could potentially adversely affect the Company's ability to raise additional
funds. At December 31, 1996, 189,799 stock options held by Mr. Belden at the
time of the January 1993 initial public offering, are subject to a lockup
agreement with RAS Securities Corp., the underwriter of the initial public
offering, whereby such persons have agreed not to sell, contract to sell, or
otherwise dispose of such shares of Common Stock, without the consent of RAS
Securities Corp., until the date the Company has $1.0 million or more in
earnings after taxes in any fiscal year as certified by the Company's
independent accountants.
EFFECT OF CERTAIN ANTI-TAKEOVER CHARTER AND BYLAW PROVISIONS
Certain provisions of the Company's Amended and Restated Articles of
Incorporation (the "Articles") and Bylaws could have the effect of making it
more difficult for a third party to acquire, or could discourage a third party
from attempting to acquire, control of the Company. Such provisions may limit or
reduce the price that investors might be willing to pay for shares of the Common
Stock. Certain of such provisions allow the Company to issue preferred stock
with rights senior to those of the Common Stock and impose various procedural
and other requirements that could make it more difficult for shareholders to
effect certain corporate actions. The Articles also provide for a classified
board in the event the Company's shares are traded on a national securities
exchange or the Nasdaq National Market. A classified board could make it more
difficult for a third party to acquire control, or could discourage a third
party from attempting to acquire, control of the board.
ITEM 2. DESCRIPTION OF PROPERTY.
In October, 1996, the Company moved its offices to a 400 square foot
office suite in an area of northern San Diego known as the "Golden Triangle". In
1998 the company uses only floor space in the office of its sole officer, John
Belden at 600 "B" Street 18th Floor San Diego, CA. The company pays no rent for
the use of this space.
The Company does not maintain any other leases for office space and owns
no real property.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock, Units and Warrants were quoted on the Nasdaq
Small-Cap Market under the symbols OCTS, OCTSU and OCTSW, respectively, upon
completion of the Company's initial public offering on January 15, 1993 until
February 1, 1995. On February 1, 1995, the Company's securities were delisted
from the Nasdaq Small-Cap Market due to the Company's inability to meet that
market's minimum capital and surplus requirements. Since February 1, 1995, the
Company's securities have been traded on the OTC Bulletin Board. The Company's
securities now trade on the "pink sheets".
Set forth below are the ranges of high and low bid prices for the Common
Stock as reported by Nasdaq since the commencement of trading on January 18,
1993 through March 31, 1999. Quotations reflect interdealer prices without
retail markup, markdown, or commissions and may not represent actual
transactions.
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<TABLE>
<CAPTION>
COMMON STOCK
QUARTER ENDED HIGH LOW
------------- ---- ---
<S> <C> <C>
March 31, 1993(1) 5-5/8 3-3/8
June 30, 1993(1) 6-1/2 4-1/8
September 30, 1993(1) 7-3/4 4-1/4
December 31, 1993(1) 9-1/2 6-5/8
March 31, 1994(1) 8-3/4 5-1/2
June 30, 1994(1) 6 2-3/8
September 30, 1994(1) 3-3/16 1-1/4
December 31, 1994(1) 2-1/2 1-3/8
March 31, 1995(2) 5/8 7/16
June 30, 1995(2) 1/2 1/8
September 30, 1995(2) 17/32 15/32
December 31, 1995(2) 3/16 3/32
March 31, 1996(2) 5/16 5/32
June 30, 1996(3) 3/4 3/16
September 30, 1996(3) 7/16 3/16
December 31, 1996(3) 5/16 3/16
March 31, 1997(3) 1/4 1/16
June 30, 1997(4) 23/32 1/16
September 30, 1997(4) 5/8 9/32
December 31, 1997(4) 3/8 9/16
March 31, 1998(4) 1/2 5/32
June 30, 1998 1/8 3/32
September 30, 1998 1/4 2/32
December 31, 1998 1/4 1/32
March 31, 1999 1/8 1/32
</TABLE>
(1) Monthly Statistical Reports, January 1993 through December 1994 prepared
by the Nasdaq Stock Market.
(2) CompuServe Stock Quotes, 1995
(3) America Online Stock Quotes, 1996
(4) PC-Quote.com Online Stock Quotes, 1997
(5) PC-Quote.com Online Stock Quotes, 1998
On March 31, 1999, the closing price of the Company's Common Stock on
the OTC Bulletin Board was $0.03125 per share.
The Company has never declared or paid cash dividends on its Common
Stock and has no current intention to declare or pay any dividends on its Common
Stock in the foreseeable future. The Company intends to retain its earnings, if
any, for the development of its business. On January 15, 1998, public and
underwriter's 5-year warrants, issued pursuant to the Company's initial public
offering lapsed and expired.
As of March 31, 1999, there were approximately 975 holders of the
Company's Common Stock, and one holder of the Company's Series C Preferred
Stock, the Company's only outstanding classes of securities.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This information should be read in conjunction with the audited
financial statements and notes thereto which begin on page F-1 of this report
for the years ended December 31, 1998 and 1997, respectively.
9
<PAGE> 10
OVERVIEW
OCTuS was incorporated in 1983 to develop a low cost controller for
laser printers. By the end of 1985, the Company had developed a laser printer
controller with a proprietary page description language that it incorporated
into laser printers and marketed under the LaserPro(R) trademark. The Company
was also licensing its laser printer controller technology. This strategy
produced increasing sales and profits until mid-1989 when profits began to
decline primarily as a result of low margins and other competitive reasons
caused by the high cost of the necessary component parts in relation to the
competitive market price and the dominant market position of larger high-volume
competitors. Although there is no assurance, the Company does not expect the
foregoing factors to significantly affect the OCTuS PTA line of products because
software products do not rely so heavily on component parts supplied by other
manufacturers. While royalties from printer licensing agreements provided
working capital, the Company began to suffer operating losses in 1989, which
have continued through the present.
In early 1991, the Company began shifting its emphasis from laser
printer controller products to the development of its new product line. Since
1991, the Company has made significant changes to its business, management and
operations. However, until September 1993, substantially all of the Company's
revenues were derived from business activities involving the Company's laser
printer technology and technology licensing agreements. In September 1993, the
Company sold substantially all of the assets and inventory of the laser printer
business to National Computer Systems, Inc. ("NCS"). Since that time, the
Company has not generated significant revenues from sales of its OCTuS PTA
product due to poor product sales and lack of broad market acceptance. As a
result, in 1994, the Company was required to significantly downsize its staff
and reduce its operating expenses, which continued into 1995. See Part I,
"Description of Business," "--Employees," and "--Factors Which May Affect Future
Results," "---Restructuring of Operations."
In March 1995, the Company engaged a third-party distributor, Cintech
Tele-Management Systems, Inc. ("Cintech") to exclusively manufacture, distribute
and sell the retail version of OCTuS PTA in North America. Since that time, the
Company has focused its efforts on the licensing of its OCTuS PTA technology to
third parties for incorporation by such parties into their own respective
product lines. Although several companies have expressed interest in licensing
the Company's technology, no significant licensing arrangements have been
entered into to date, nor can there be any assurance that the revenue from any
such licensing agreements will be sufficient to sustain the Company's
operations. In such case, the Company will be required to curtail business
altogether. In March of 1997, Cintech elect not to renew its agreement with the
Company, thereby leaving the Company with no current means of distribution of
its products. See Part I, "Description of Business," "--OCTuS PTA", "--Strategic
Alliances and Market Reception," and "--General Distribution Strategy."
The discussion and analysis set forth below covers the following
comparative periods: the calendar years ended December 31, 1998 and December 31,
1997; and the calendar years ended December 31, 1997 and December 31, 1996.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
ROYALTY AND TECHNOLOGY INCOME. Royalty and technology income decreased
$85,197, from $94,997 for the fiscal year ending December 31, 1997 to $9,800 for
the fiscal year ending December 31, 1998. Such amount for the current fiscal
year ended December 31, 1998 represents royalty income and payments for
modifications to the standard OCTuS PTA product received from Ascom
Telecommunications Limited of the United Kingdom ("Ascom").
INTEREST INCOME. There was no interest income for the fiscal year ending
December 31, 1998, which represented no change, from the same period in 1997.
COST OF SALES. There was an $9,800 cost of sales for the fiscal year
ending December 31, 1998, compared with $83,887 cost of sales for the fiscal
year ending December 31, 1997. Cost of sales as a percentage of net sales for
the fiscal year ending December 31, 1998 was 100% compared to 88.3% for the
fiscal year ending December 31, 1997. This decrease in cost is associated with
the subcontract fees paid in 1997 to accomplish the modifications to the
standard OCTuS PTA on behalf of Ascom. The increased percentage is due to
decreased income in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for calendar year 1998 decreased $101,086, from $286,507
in the fiscal year ending December 31, 1997 to $185,421 in the fiscal year
ending December 31, 1998. The decrease reflects the cutback in facilities and
staff as the company has scaled down operations.
RESEARCH AND DEVELOPMENT. There were no significant research and
development expenses for the fiscal years ending December 31, 1998 and 1997; as
such, these expenses were recorded as general and administrative expenses for
the fiscal year ending December 31, 1998 and 1997. The decrease reflects the
Company's curtailment of resources with respect to the development of its OCTuS
PTA product line as the product transitioned from development to marketing
stage. In addition, due to reduced capital resources, the Company eliminated or
suspended certain future projects and eliminated its research and development
staff in prior years.
NET LOSS/GAIN. The Company experienced a net loss of $220,223 for the
fiscal year ended December 31, 1998. This reflects a decrease of $1,122 under
the loss of $219,101 for the fiscal year ended December 31, 1997 reflecting the
cutback of staff and facilities in 1998.
10
<PAGE> 11
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
ROYALTY AND TECHNOLOGY INCOME. Royalty and technology income increased
$44,997, or 89.9%, from $50,000 for the fiscal year ending December 31, 1996 to
$94,997 for the fiscal year ending December 31, 1997. Such amount for the
current fiscal year ended December 31, 1997 represents royalty income and
payments for modifications to the standard OCTuS PTA product received from Ascom
Telecommunications Limited of the United Kingdom ("Ascom").
INTEREST INCOME. There was no interest income for the fiscal year ending
December 31, 1997, which represented no change, from the same period in 1996.
COST OF SALES. There was an $83,887 cost of sales for the fiscal year
ending December 31, 1997, compared with no cost of sales for the fiscal year
ending December 31, 1996. Cost of sales as a percentage of net sales for the
fiscal year ending December 31, 1997 was 88.3% compared to 0.0% for the fiscal
year ending December 31, 1996. This increase is associated with the subcontract
fees paid to accomplish the modifications to the standard OCTuS PTA on behalf of
Ascom.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for calendar year 1997 increased $37, 507, from $249,000
in the fiscal year ending December 31, 1996 to $286,507 in the fiscal year
ending December 31, 1997. The increase of 15.1%, reflects primarily a lack of
significant sales that resulted in the Company expending its limited cash
resources in order to fund operating expenses.
RESEARCH AND DEVELOPMENT. There were no significant research and
development expenses for the fiscal years ending December 31, 1997 and 1996; as
such, these expenses were recorded as general and administrative expenses for
the fiscal year ending December 31, 1997 and 1996. Research and development
expenses in the fiscal year ending December 31, 1995, were also insignificant,
but the research and development expenses in the fiscal year ending December 31,
1994 were $2,347,000. The decrease reflects the Company's curtailment of
resources with respect to the development of its OCTuS PTA product line as the
product transitioned from development to marketing stage. In addition, due to
reduced capital resources, the Company eliminated or suspended certain future
projects and eliminated its research and development staff.
NET LOSS/GAIN. The Company experienced a net loss of $219,101 for the
fiscal year ended December 31, 1997. This reflects an increase of $28,045 over
the loss of $191,056 for the fiscal year ended December 31, 1996.
LIMITATIONS ON NET OPERATING LOSS AND CREDIT CARRYFORWARDS
As of December 31, 1998 the Company had significant tax credit and
research carry forwards for federal tax reporting purposes that expire through
2008. Additionally, the Company has federal and state net operating loss carry
forwards, expiring through 2008. Because of a substantial change in the
Company's ownership resulting from an initial public offering, an annual
limitation of approximately $600,000 has been placed on utilization of the loss
carry forwards generated prior to the Company's initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1998 the Company incurred a net loss of
$220,223. Cash on hand as of December 31, 1998 was $219. In March 1997, Cintech
elected not to renew its license to distribute OCTuS PTA. However, Cintech has
stated in its public releases that it intends to use the OCTuS technology with
other proprietary products. Management believes that without an influx of
significant new revenues from the licensing of the Company's products, the
Company's cash on hand and revenues from operations will not be sufficient to
sustain its operations through the rest of 1999. Although the Company has
actively been pursuing such licensing arrangements and new investment, there can
be no assurance that any licensing agreements and/or new investment will be
entered into by the Company, or that the terms of any such agreements will be on
terms favorable to the Company. In June 1996, the Company sold to Advanced
Technologies International, Ltd. ("ATI") 250,000 shares of Series C Preferred
stock (which votes with the Common Stock with each share of Series C Preferred
Stock having ten votes) for $151,000 and issued warrants to purchase up to an
additional 3,000,000 shares of the Company's Common Stock at an initial exercise
price of $0.43 per share. The Company had met its liquidity needs through loans
from ATI until August 1998 when ATI ceased funding the Company and subsequently
declared bankruptcy. Smith Technology Development, LLC during 1999 through a
bankruptcy purchase agreement, acquired the note, stock and warrants.
Subsequently, during 2000, the note, stock and warrants were transferred in a
sale to two independent foreign entities. The loan balance as of December 31,
1999 was $427,011. The Company accrues 10.0% simple interest on such loan and
the loan is due within five (5) days of the Company's receiving sufficient funds
from the exercise of warrants. There is no assurance that ATI or subsequent
owners of the notes and warrants will continue to fund Company or that exercise
of the warrants will enable the Company to repay such loans. Should the Company
be unable to obtain additional revenues, which is likely, and/or raise
additional capital, it could be forced to cease business activities altogether
See Part I, Description of Business, "OCTuS PTA," "Strategic Alliances and
Market Reception," and "General Distribution Strategy."
ITEM 7. FINANCIAL STATEMENTS.
The full text of the Company's audited financial statements for the
fiscal year ended December 31, 1998 begins on page F-1 of this Report.
11
<PAGE> 12
ITEM 8. ACCOUNTING AND FINANCIAL DISCLOSURE.
No reports on Form 8-K were filed with the SEC during the period covered
by this report. In April 1999 the Company changed accountants, the Company has
been delinquent on its SEC filings and filed a Form 8-K for this event in
November 2000. There were no disagreements with the former accountants regarding
accounting principles or reporting.
12
<PAGE> 13
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ending December 31,
1998 and 1997, the cash compensation paid by the Company, as well as certain
other compensation paid or accrued for those years, to (i) Mr. Belden, who
served as Chief Executive Officer of the Company. No other officers were
employed by the Company in 1997 or 1998 that earned over $100,000 in annual
salary and bonuses (the "named executive officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------- -----------------------
(E) (F) (G) (H)
(A) OTHER RESTRICTED SECURITIES ALL OTHER
NAME AND (B) (C) (D) ANNUAL STOCK UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION AWARDS OPTIONS (2)
------------------ ---- --------- ----- ------------ ------ ------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
John C. Belden(1)(2).... 1998 96,000 0 0 0 0 3,200
President & CEO 1997 96,000 0 0 0 0 3,200
</TABLE>
----------
(1) Includes compensation that was accrued and deferred pursuant to the
Company's 401(k) Plan.
(2) Includes premium for life insurance policies paid by the Company, 401(k)
contributions by the Company.
STOCK OPTION GRANTS TABLE
The following table provides information concerning the grant of stock options
to the named executive officers of the Company during fiscal 1997 and 1998. The
Company does not have any outstanding stock appreciation rights.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) DATE
---- ---------- ----------- ----------- ----
<S> <C> <C> <C> <C> <C>
N/A 1998 0 0 N/A N/A
1997 0 0 N/A N/A
</TABLE>
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table provides information with respect to the named
executive officers, concerning the exercise of stock options during fiscal 1997
and 1996 and unexercised options held as of the end of fiscal 1997 and 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END(#) FY-END($)
------------- -------------
SHARES
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
John C. Belden.... 1998 0 0 389,799/0 0/0
1997 0 0 289,799/100,000 0/0
</TABLE>
13
<PAGE> 14
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT
Effective July 17, 1996, the Board of Directors authorized and approved
a two year Employment Agreement for its Chief Executive Officer, John Belden.
Mr. Belden has continued to served as the Chief Executive Officer on an at will
basis after his employment agreement ended on July 17, 1998. The Company accrued
wages for Mr. Belden through the end of 1998. In January 1999 the Company's
activities had subsided and Mr. Belden found other full time employment,
therefore the Company stopped accruing wages at that time. In total the Company
owed Mr. Belden $48,604 at December 31, 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Voting Stock as of March 31, 1999, by (i)
each of the Company's named executive officers and directors; (ii) the Company's
named executive officers and directors as a group; and (iii) shareholders known
by the Company to beneficially own more than 5% of any class of the Company's
voting securities. For purposes of this Proxy Statement, beneficial ownership of
securities is defined in accordance with the rules of the Securities and
Exchange Commission and means generally the power to vote or exercise investment
discretion with respect to securities, regardless of any economic interests
therein. Except as otherwise indicated, the Company believes that the beneficial
owners of the securities listed below have sole investment and voting power with
respect to such shares, subject to community property laws where applicable.
Unless otherwise indicated, the business address for each of the individuals or
entities listed below is c/o OCTuS, Inc., 600 "B" Street 18th Floor San Diego,
CA 92101
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SERIES C
COMMON SHARES PREFERRED SHARES
BENEFICIALLY BENEFICIALLY
NAME OWNED OWNED PERCENT OF CLASS
---- ----- ----- ----------------
<S> <C> <C> <C>
OFFICERS AND DIRECTORS
Ronald A. Newcomb(2)....................... 168,000 3.98% of Common Stock
Chairman; Director 2.5% of Voting Stock
John C. Belden(1) President & CEO, Director.. 389,799 8.44% of Common
Stock, if issued
5.47% of Voting Stock
Robert A. Freeman(1)(3)...................... 25,000 0.59% of Common
Stock, if issued
Advanced Technologies
International, Ltd.(4)(6).................. 3,000,000 250,000 41.53% of Common
Stock, if issued
100% of Preferred
Stock issued
37.19% of Voting Stock
RUBICON PETROLEUM OF TEXAS INC(5)............ 228,000 5.39% of Common Stock
3.39% of Voting Stock
EXECUTIVE OFFICERS AND DIRECTORS AS A
GROUP 11.43% of Common Stock
(3 persons)(1)............................. 607,799 8.51% of Voting Stock
</TABLE>
---------
(1) Includes the following shares issuable upon exercise of stock options
that are exercisable within 60 days from: Mr. Belden, 389,799; Mr.
Freeman, 25,000.
(2) Mr. Newcomb's address is 5514 Waring Rd. San Diego, CA 92120-1852
(3) Mr. Freeman's address is 525 Seabright Lane, Solana Beach, CA 92075
(4) As reported in a Schedule 13D filed by Advanced Technologies
International, Ltd. ("ATI") on July 12, 1996. ATI owns warrants to
purchase 3,000,000 shares of Common Stock at prices ranging from $.43 to
$.75 per share. ATI's address is Suite 2200 Two La Salle Street,
Chicago, IL 60602. Warrants are not calculated into any percentages.
14
<PAGE> 15
(5) The address of RUBICON PETROLEUM OF TEXAS INC listed in the 13d filing
made November 20, 1998 is 6 Pine Rd, Colorado Springs CO 80906.
According to the 13d, this entity owns 228,000 shares of common stock.
(6) Preferred C shares have 10:1 voting rights and are therefore calculated
by the rights, not the number of shares.
CHANGE IN CONTROL
In June 1996, the Company sold to Advanced Technologies International,
Ltd. ("ATI") 250,000 shares of Series C Preferred Stock for $151,000 and issued
to ATI warrants to purchase up to an additional 3,000,000 shares of the
Company's Common Stock at an initial exercise price of $0.43 per share. While
voting power was disbursed among the Company's shareholders prior to the ATI
transaction, at March 31, 1999 ATI controlled 56.6% of the voting power
(assuming exercise by ATI of the warrant) of the Company's Voting Stock. Smith
Technology Development, LLC during 1999 through a bankruptcy purchase agreement,
acquired the stock and warrants. Subsequently, during 2000, the note, stock and
warrants were transferred in a sale to two independent foreign entities.
INFORMATION REGARDING DIRECTORS
The information set forth below as to each Director has been furnished
to the Company by the respective Director:
<TABLE>
<CAPTION>
DIRECTOR
NAME PRESENT POSITION WITH THE COMPANY SINCE AGE
---- --------------------------------- ----- ---
<S> <C> <C> <C>
Ronald A. Newcomb.......... Chairman of the Board; Director 1998 45
John C. Belden............. President and Chief Executive Officer; 1989 69
Chief Financial Officer; Director
Robert A. Freeman.......... Director; Assistant Secretary 1983 60
</TABLE>
Mr. Newcomb was appointed to the board in December 1998 and has served
as Chairman of the Board since that time. Since 1986, he has served as President
and Director of MAC Asset Management LLC a consulting firm in San Diego and is
the former owner of KLVW 100.1 FM in San Diego. His background includes service
as director of numerous companies and organizations in the US and abroad.
Mr. Belden has served as a director of the Company since October 1989,
as its President and Chief Executive Officer from March 1990 to November 1994,
and as its Chairman from November 1994 to October 1995. He was re-appointed
President and Chief Executive Officer in June 1995 following Ray M. Healy's
resignation. From November 1990 to July 1992, and since August 1994, he has also
served as the Company's Chief Financial Officer. From March 1995 to January
1997, he served as Corporate Secretary. From June 1984 until assuming his
current position, Mr. Belden served as Vice President, Marketing of the American
Electronics Association.
Mr. Freeman, a co-founder and an original director of the Company, has
served as a director since 1983 and as Assistant Secretary of the Company since
1996. In addition, he has served in other positions with the Company, including
Vice President, Marketing, in 1988 and Vice President, Research and Development,
from 1983 to 1987. Since 1989, Mr. Freeman has provided consulting services from
time to time in addition to his duties as a director. Since 1991, Mr. Freeman
has been a partner in RJ Engineering that has, from time to time, provided
consulting services to the Company. Mr. Freeman also served as Chief Operating
Officer of Pan Pacific Technology Group from 1989 to 1991.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company had been meeting its needs for cash through loans from ATI.
The loan balance had been increasing at approximately $15,000 per month until
August 1998 when ATI ceased funding the Company. The Company accrues 10.0%
simple interest on such loans and the loan is due within five (5) days of the
Company's receiving sufficient funds from the exercise of warrants by ATI. ATI
declared Bankruptcy in 1999 and the Note, Preferred Stock and warrants were
subsequently purchased by Smith Technology Development, LLC.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the last quarter
of the period covered by this report.
15
<PAGE> 16
OCTUS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
small business issuer has duly caused this report to be signed on its behalf by
the undersigned thereunto authorized.
OCTUS, INC.
Date: December 27, 2000 /s/ JOHN C. BELDEN
----------------- -----------------------------------
John C. Belden Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated as of December 26, 2000.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JOHN C. BELDEN President (Principal Executive Officer, December 26, 2000
--------------------------- Principal Financial & Accounting
John C. Belden Officer) Director
/s/ RONALD A. NEWCOMB Director and Chairman of the December 26, 2000
--------------------------- Board
Ronald A. Newcomb
/s/ ROBERT A. FREEMAN Director December 26, 2000
---------------------------
Robert A. Freeman
</TABLE>
16
<PAGE> 17
OCTUS, INC.
INDEX TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<S> <C>
Report of Independent Auditors 1998 F-2
Report of Independent Auditors 1997 F-3
Balance Sheets as of December 31, 1997 and 1998 F-4
Statements of Operations - F-5
Years Ended December 31, 1997 and 1998
Statements of Changes in Shareholders' Deficiency - F-6
Years Ended December 31, 1997 and 1998
Statements of Cash Flows - F-7
Years Ended December 31, 1997 and 1998
Notes to Financial Statements F-8
</TABLE>
F-1
<PAGE> 18
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders OCTuS, Inc.
We have audited the accompanying balance sheets of OCTuS, Inc. as of December
31, 1998, and the related statements of operations, changes in shareholders'
deficiency and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
financial statements of OCTuS, Inc. as of December 31, 1997, were audited by
other auditors whose report dated March 16, 1998, on those statements included
an explanatory paragraph that referred to conditions that raise substantial
doubt about the Company's ability to continue as a going concern discussed in
Note 2 to the financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OCTuS, Inc. as of December 31,
1998, and the results of operations, shareholders' deficiency and cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has a working capital and shareholders' deficiency of $580,605 as of
December 31, 1998. As discussed in Note 2 to the financial statements, these
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding those matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ LOGAN THROOP & CO., LLP
------------------------------
Logan Throop & Company
San Diego, California
April 12, 1999
F-2
<PAGE> 19
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders OCTuS, Inc.
We have audited the accompanying balance sheets of OCTuS, Inc. as of December
31, 1997, and the related statements of operations, changes in shareholders'
deficiency and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OCTuS, Inc. as of December 31,
1997, and the results of operations, shareholders' deficiency and cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has a working capital and shareholders' deficiency of $360,382 as of
December 31, 1997. As discussed in Note 2 to the financial statements, these
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding those matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
HOLLANDER, GILBERT & CO.
Los Angeles, California
March 16, 1998
F-3
<PAGE> 20
OCTUS, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 0 $ 219
------------ ------------
TOTAL CURRENT ASSETS 0 219
------------ ------------
PROPERTY AND EQUIPMENT, Net (Note 3) 0 0
------------ ------------
$ 0 $ 219
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 34,302 $ 33,451
Accrued liabilities 21,125 64,602
Convertible note payable (Note 5) 25,000 0
Interest accrued on related party advances (Note 5) 18,144 56,260
Advances from related party (Note 5) 261,811 426,511
------------ ------------
TOTAL CURRENT LIABILITIES 360,382 580,824
------------ ------------
SHAREHOLDERS' DEFICIENCY (Notes 6 and 7)
Preferred Stock - authorized 2,000,000
shares, issued and outstanding
250,000 shares 151,000 151,000
Common Stock - no par value; authorized
100,000,000 shares, issued and outstanding
4,222,922 and 4,223,390 shares, respectively 21,966,577 21,966,577
Accumulated deficit (22,477,959) (22,698,182)
------------ ------------
TOTAL SHAREHOLDERS' DEFICIENCY (360,382) (580,605)
------------ ------------
$ 0 $ 219
============ ============
</TABLE>
See accompanying notes and Independent Auditors' report
F-4
<PAGE> 21
OCTUS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
REVENUES
<S> <C> <C>
Royalties and technology income (Notes 1 and 4) $ 94,997 $ 9,800
----------- -----------
TOTAL REVENUES 94,997 9,800
----------- -----------
COSTS AND EXPENSES
Selling, general and administrative 286,507 185,421
Depreciation and amortization 2,981 0
Interest 24,610 44,602
----------- -----------
TOTAL COSTS AND EXPENSES 314,098 230,023
----------- -----------
NET INCOME (LOSS) BEFORE INCOME TAXES (219,101) (220,223)
INCOME TAX BENEFIT (Note 9) 0 0
----------- -----------
NET INCOME (LOSS) $ (219,101) $ (220,223)
=========== ===========
PRIMARY EARNING (LOSS) PER COMMON SHARE
Net income (loss) before extraordinary item $ (.05) $ (.05)
Extraordinary gain
NET INCOME (LOSS) $ (.05) $ (.05)
=========== ===========
AVERAGE NUMBER OF COMMON SHARES
USED IN PRIMARY CALCULATIONS 4,222,922 4,223,390
=========== ===========
</TABLE>
See accompanying notes and Independent Auditors' report
F-5
<PAGE> 22
OCTUS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------------------- ---------------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEFICIT AMOUNT
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 250,000 $ 151,000 4,222,922 $ 21,966,577 $(22,258,858) $ (141,281)
Net loss 0 0 0 0 (219,101) (219,101)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 250,000 151,000 4,222,922 21,966,577 (22,477,959) (360,382)
Adjustment to shares outstanding 0 0 468 0 0 0
Net loss 0 0 0 0 (220,223) (220,223)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 250,000 $ 151,000 4,223,390 $ 21,966,577 $(22,698,182) $ (580,605)
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes and Independent Auditors' report
F-6
<PAGE> 23
OCTUS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(219,101) $(220,223)
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation and amortization 2,981 0
Changes in operating assets and liabilities:
Accounts payable 5,666 (851)
Accrued liabilities (2,303) 43,427
Accrued interest to related party 17,681 38,166
Deferred revenue (10,000) 0
--------- ---------
NET CASH USED BY OPERATING ACTIVITIES (205,076) (139,481)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposition of fixed assets 2,245 0
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 2,245 0
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of capital leases (1,882) 0
Payments on notes 0 (25,000)
Advances from related party 191,811 164,700
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 189,929 139,700
--------- ---------
NET INCREASE (DECREASE) IN CASH (12,902) 219
CASH AT BEGINNING OF YEAR 12,902 0
--------- ---------
CASH AT END OF YEAR $ 0 $ 219
========= =========
OTHER CASH INFORMATION
Interest paid $ 4,796 $ 6,486
========= =========
Interest received $ nil nil
========= =========
</TABLE>
See accompanying notes and Independent Auditors' report
F-7
<PAGE> 24
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Business - OCTuS Inc. (the "Company") was formed as a
California corporation in 1983. From incorporation to 1991, the
Company's principal business activities involved the design, development
and distribution of controllers for non-impact printers and related
laser printer products. In 1991, the Company became primarily engaged in
the design, development, marketing and distribution of hardware and
software products for use in the computer telephone integration (CTI)
market. The Company's products are focused on the unification of the
personal computer and the telephone in the office environment.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
Property and Equipment - Property and equipment are recorded at cost and
depreciated over their estimated useful lives of two to five years using
the straight-line method. Depreciation expense includes amortization of
assets under capital lease arrangements.
Revenue Recognition - Revenue from product sales is recognized when
goods are shipped and royalties are recognized as earned over the
respective contract terms.
Research and Development - Research and development costs are expensed
in the period incurred.
Earnings (Loss) Per Common Share - Earnings (loss) per common share is
based upon the weighted average number of common shares, including
common share equivalents, outstanding during the periods. Common share
equivalents, when anti-dilutive, are excluded from weighted average
number of shares outstanding for all periods presented.
Effects of Recent Accounting Pronouncements - The Financial Accounting
Standards Board (FASB) has issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This statement requires that the Company review for impairment of
long-lived assets, certain identifiable intangibles, and goodwill
related to those assets whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
SFAS No. 121 was effective for the Company's fiscal year beginning
January 1, 1996. The adoption of this statement did not have a material
impact on the Company's financial position or result of operations for
the fiscal year ended December 31, 1997. The FASB also issued SFAS No.
123, "Accounting for Stock-Based Compensation." The Company was required
to adopt SFAS No. 123 for the fiscal year beginning January 1996. This
statement establishes accounting and disclosure requirements using a
fair value-based method of accounting for stock-based employee
compensation plans. Under SFAS No. 123, the Company may either adopt the
new fair value-based accounting method or continue the intrinsic
value-based method and provide pro forma disclosures of net income and
earnings per share as if the fair value accounting provisions of this
statement had been adopted. The Company adopted only the disclosure
requirements of SFAS No. 123; therefore such adoption had no effect on
the Company's financial position or results of operations for the fiscal
years ended December 31, 1998 and 1997. Nonetheless, due to the limited
volume of trading in the Company's Common Stock, such disclosures are
not determinable by the Company.
2. DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
The Company incurred a net loss of $220,223 for the year ended December
31, 1998, and has an accumulated deficit of $22,698,182 at December 31,
1998. Due to the Company's increasing capital constraints, management
has focused its effort on licensing the Company's core technology and
curtailing further research and development. Management believes that
the potential establishment of revenue-generating license agreements,
combined with potential additional financing, would enable it to meet
the liquidity requirements of the Company; however, at present the
Company has no commitments for significant licensing agreements and does
not believe its current licensing agreements alone are sufficient to
provide for the continued viability and operations of the Company.
Furthermore, the Company has no commitment from any party to provide
additional capital and there is no assurance that such funding will be
available when needed, or if available, that its terms will be favorable
or acceptable to the Company.
F-8
<PAGE> 25
2. DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES (Continued)
Should management be unable to enter into significant licensing
agreements and obtain additional capital when and as needed, it could be
forced to cease the Company's business activities altogether and
liquidate the Company's net assets. Additionally, there is no assurance
the Company will not require additional capital resources in the conduct
of its planned business activities. In the absence of the establishment
of significant revenue generating licensing agreements and general
market acceptance of the Company's technology, there is no assurance
that the Company will have the ability to continue as a going concern.
On March 9, 1998, the Company received notice that its contract to
develop computer telephony software for its only customer has been
terminated. The loss of this contract for its OCTuS PTA software will
seriously impair the ability of the Company to sustain operations unless
alternative business opportunities are developed.
3. PROPERTY AND EQUIPMENT
Property and equipment was comprised of the following at December 31,
1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Computer equipment $ 12,922 $ 7,772
Furniture and fixtures 19,122 0
-------- --------
32,044 7,772
Less accumulated depreciation and
amortization (32,044) (7,772)
-------- --------
$ 0 $ 0
======== ========
</TABLE>
4. RELATED PARTY BALANCES AND TRANSACTIONS
During 1997 and 1998, the Company paid $74,725 and $9,800, respectively
in engineering fees to Robert Freeman, director of the Company.
During 1996, 1997 and 1998, an affiliate of the Company's Series C
Preferred Stock holder advanced to the Company a total of $426,511 for
working capital purposes. Such advances bear interest at 10% and are due
and payable, with accrued interest, upon the Company receiving
sufficient funds from the exercise of the common stock warrants held by
the Series C Preferred Stock holder.
5. NOTES AND ADVANCES PAYABLE
On December 1, 1995, Maroon Bells Capital Partners, Inc. (Note 4)
advanced $25,000 to the Company for working capital purposes. The note
bears interest at 8% and is due with accrued interest on November 30,
1997. The note was paid in full on March 3, 1998. Additionally, the note
was convertible at any time into shares of the Company's Common Stock at
the rate of $.25 per share. The note also contained certain acceleration
and anti-dilution clauses upon conversion. Maroon Bells was also granted
25,000 warrants with a nominal fair market value, to purchase the
Company's Common Stock at a price per share of $.25. The warrants are
for a five-year period.
6. SHAREHOLDERS' EQUITY
Common Stock - On January 15, 1993, the Company completed an offering of
2,000,000 units at the initial public offering price of $6.00 per unit.
Each unit consisted of one share of Common Stock, no par value, and one
common stock purchase warrant.
Each warrant entitles the registered holder to purchase one share of
Common Stock from the Company until January 15, 1998. The holders of the
warrants have certain anti-dilution protection upon the occurrence of
certain events. Due to completion of a private offering of unregistered
Common Stock in July 1994, the Company adjusted the exercise price of
the warrants and the number of shares. Accordingly, the exercise price
of one share of Common Stock purchased pursuant to each warrant
decreased from $7.00 per share to $6.49 per share. In addition, the
total number of warrants increased from 2,000,000 to 2,157,660.
F-9
<PAGE> 26
6. SHAREHOLDERS' EQUITY (Continued)
The Company's Common Stock, units and warrants were delisted from the
NASDAQ Small-Cap Market as of February 1, 1995 due to the Company's
inability to meet that market's minimum capital and surplus
requirements. Since that time, the Company's securities have been
trading on the OTC Bulletin Board.
In connection with the initial public offering described above, the
Company sold to the underwriter, for a nominal consideration, five-year
warrants to purchase Common Stock of the Company. The underwriter's
warrants contain anti-dilution provisions providing for adjustment of
the exercise price and the number and type of securities issuable upon
exercise of the underwriter's warrants upon the occurrence of certain
events.
During 1995 and 1997, the Company also issued warrants to purchase the
Company's Common Stock to a consultant (Note 5) and to the purchaser of
the Company's Series C Preferred Stock in connection with the
transaction described below.
On June 7, 1997, the Company increased the number of authorized shares
of common stock from 20,000,000 to 100,000,000.
Preferred Stock - In July, 1996 the Company issued 250,000 of its Series
C Preferred Stock and one five-year warrant to purchase up to 3,000,000
shares of its Common Stock to one investor for a total investment of
$151,000. With respect to the warrant, such shares may be exercised at a
price of $0.43 per share. However, such exercise price is subject to
adjustment from time to time as described in the warrant agreement. The
Company has granted piggyback and demand registration rights to the
investor with respect to the shares of Common Stock underlying such
warrant. The Company has further agreed to nominate two (2) individuals
designated by such investor to the Company's board of directors.
The Series C Preferred Stock, as established by the Company, consists of
a total of 250,000 shares and is senior in preference and priority in
all manners whatsoever with respect to the Company's Common Stock and
any and all classes of the Company's Preferred Stock. The holder of the
Series C Preferred Stock is entitled to receive cumulative dividends at
the annual rate of $0.036 per share payable in cash when, as and if
declared by the Company's board of directors out of any funds legally
available therefor. Such dividends shall accrue on a cumulative basis on
each share of Series C Preferred Stock from day, to day, whether or not
declared or paid. Such shares of Series C Preferred Stock shall not be
convertible into Common Stock of the Company or any other of the
Company's securities. The holder of each share of Series C Preferred
Stock shall be entitled to 10 votes per share, entitled to vote on all
matters which come before the Company's shareholders for which a vote is
taken or any written consent of the Company's shareholders is solicited,
such votes to be counted together with all other shares of the Company's
securities having general voting power and not separately as a class.
The Company has the right to call and redeem all (but not less than all)
of the outstanding shares of Series C Preferred Stock for an aggregate
price equal $0.63 per share of Series C Preferred Stock, plus any and
all then accrued but unpaid dividends, provided however, that the
Company shall have no right to call or redeem any shares of Series C
Preferred Stock prior to June 30, 1999 without the express prior written
consent of the holder of 100% of the then outstanding shares of the
Series C Preferred Stock, which consent may be withheld or denied in the
sole and absolute discretion of the holder of the Series C Preferred
Stock for any reason or no reason whatsoever.
Cumulative dividends, unpaid on Series C Preferred Stock amounted to
$22,685 at December 31, 1998.
During 1998 some old shares of Series B Preferred Stock were brought in
for conversion to 468 shares of common stock. These shares were
previously unaccounted for due to an error. Therefore there is an
adjustment to the total shares of common stock outstanding during 1998.
F-10
<PAGE> 27
7. STOCK OPTION PLANS
The Company has various stock option plans and has reserved a total of
414,799 shares of common stock at December 31, 1998, for option grants
to directors, officers, employees, consultants of the Company and any
subsidiary or parent of the Company. Such options are generally granted
at current values, vest over three to five years, and expire not more
than ten years from date of grant.
Transactions under all stock option plans are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
-------- -----------
<S> <C> <C>
Outstanding at December 31, 1996 464,799 $ .13-$3.68
Options granted 50,000 $ .25
Options expired 0
-------- -----------
Outstanding at December 31, 1997 514,799 $ .13-$3.68
Options granted 0
Options expired (100,000) .125-.25
-------- -----------
Outstanding at December 31, 1998 414,799 $ .25-$3.68
======== ===========
</TABLE>
8. EMPLOYEE BENEFIT PLAN
The Company has an Internal Revenue Code Section 401(k) savings and
retirement plan to provide employees with retirement benefits through a
program of regular savings supplemented by Company contributions. The
Company's funding policy is to make matching contributions in a range
from 0% to 100% of employee contributions, pursuant to the plan, up to a
maximum of 6% of a participant's gross earnings. For the years ended
December 31, 1997 and 1998, the Company made matching contributions to
the plan of $2,640 and $1,760 respectively.
9. INCOME TAXES
There was no current provision for Federal or state income taxes in 1997
and 1998 due to taxable losses. Deferred tax assets at December 31, 1997
and 1998 are comprised of the following:
<TABLE>
<S> <C> <C>
NOL carryforwards $ 8,554,253 $ 8,242,383
Foreign and research tax credits 895,007 895,007
Depreciation 1,489 1,018
Other 2,515 5,716
----------- -----------
9,453,264 9,144,124
Less valuation allowance (9,453,264) (9,144,124)
----------- -----------
$ 0 $ 0
=========== ===========
</TABLE>
As of December 31, 1998, the Company has federal net operating loss
carryforwards of approximately $23,434,426, available to reduce future
federal taxable income which expire through 2013. The Company also has
foreign tax credit and research credit carryforwards for federal tax
reporting purposes totaling approximately $692,000, which expire through
2008. Because of a substantial change in the Company's ownership
resulting from the consummation of an initial public offering on January
15, 1993, an annual limitation of approximately $243,600 has been placed
on the amount of tax credit and net operating loss carryforwards
generated prior to the public offering.
In certain circumstances which are specified in Section 382 of the
Internal Revenue Code, a 50% or more ownership change to any combination
of significant shareholders (those owning 5% or more of the Company's
outstanding stock) of the Company during any three-year period would
result in a limitation on the Company's ability to utilize its net
operating loss carryforward and realize the benefit of future tax
deductions. The last application of Section 382 was in connection with
the initial public offering. Subsequent significant changes in ownership
could trigger additional limitations on the utilization of the Company's
operating loss carryforwards.
F-11
<PAGE> 28
10. COMMITMENTS AND CONTINGENCIES
Employment Agreement - Effective July 17, 1996, the Board of Directors
authorized and approved a two year Employment Agreement for its Chief
Executive Officer, John Belden, at a monthly rate of $8,000. Mr. Belden
has continued to serve as the Chief Executive Officer on an at will
basis after his employment agreement ended on July 17, 1998.
Concurrently, the Board of Directors granted Mr. Belden an option to
purchase 200,000 shares of the Company's Common Stock pursuant to the
Company's 1988 Non-Statutory Stock Option Plan. The grant is at an
option price of $.25 per share and vests at the rate of 50,000 shares
per year over a four-year period.
11. YEAR 2000
The Company has assessed its information technology to be ready for the
Year 2000. The Company's information technology has been tested for Year
2000 compliance and the results to date have been positive. The Company
has not assessed the effects of the Year 2000 on its vendors, customers
and other third-party organizations. The cost of the Year 2000
initiatives is not expected to be material to the Company's results of
operation or financial position.
F-12
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION NUMBERED PAGE
------ -------------------- ----
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation +
3.1.1 Certificate of Determination of Preferences of
Series C Preferred Stock of OCTuS, Inc. ++
3.2 Amended Bylaws !
9 Irrevocable Proxy from Tokyo Electric Co., Ltd.
(included in Exhibit 10.26.1) *
10.3 Sample Warrant *
10.4 Amended and Restated 1987 Nonstatutory Stock
Option Plan +
10.5 Form of Stock Option Agreement, Non-Qualified
Options, 1987 Plan *
10.6 Amended and Restated 1988 Nonstatutory Stock
Option Plan *
10.7 Form of Stock Option Agreement, Non-Qualified
Options, 1988 Plan *
10.8 Amended and Restated 1992 Key Executive Stock *
Purchase Plan
10.9 Lease dated April 7, 1995 by and between Mistek
Investment Group and OCTuS, Inc. for 8352 Clairemont
Mesa Blvd., San Diego, CA 92111 +++
10.10 Standard Industrial Net Lease dated July 29, 1994 by
and between Sorrento Corporate Center and OCTuS,
Inc., for 9944 Barnes Canyon Road, Suite A, San Diego
CA 92121 ++
10.11 Lease Surrender Agreement dated April 8, 1995
(as amended May 31, 1995), by and between
Sorrento Corporate Center and OCTuS, Inc., for 9944
Barnes Canyon Road, Suite A, San Diego, CA
92121 +++
10.12 Employment Agreement dated June 1, 1992 by and
between OCTuS, Inc. and John C. Belden, as amended
May 14, 1993 and February 16, 1995 #
10.16 Form of Indemnification Agreements entered into
by and between OCTuS, Inc. and its officers and
directors *
10.17 401(k) Plan Document *
10.18 Form of Unit Certificate *
10.19 Directors 1993 Stock Option Plan
Form of Stock Option Agreement, Non-Qualified
Options, 1993 Directors Stock Option Plan **
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION NUMBERED PAGE
------ -------------------- ----
<S> <C> <C>
10.20 Warrant, Caledonian European Securities Ltd.,
dated July 15, 1993 **
10.21 Warrant, Neil Haverty, dated July 15, 1993 **
10.22 Warrant, Maroon Bells Capital Partners, Inc.,
dated July 15, 1993 **
10.23 Promissory Note of Nolan K. Bushnell, dated as
of February 8, 1993, payable to OCTuS, Inc. **
10.24 Stock Pledge Agreement by Nolan K. Bushnell in
favor of OCTuS, Inc., dated February 8, 1993, as
amended October 7, 1993 **
10.25 Purchase and Sale Agreement dated September 14,
1993 by and between OCTuS, Inc. and National Computer
Systems, Inc. **
10.26 Letter Agreement dated January 26, 1995 by and
between OCTuS, Inc. and National Computer Systems, Inc. #
10.27 Purchase and License Agreement dated March 7,
1995 by and between Cintech Tele-Management Systems,
Inc. and OCTuS, Inc., as amended May 16, 1995 +++
10.28 Product Development and License Agreement dated
September 5, 1995 by and between Ascom
Telecommunications Limited and OCTuS, Inc. !
10.29 Promissory Note dated December 1, 1995 from
OCTuS, Inc. to Maroon Bells Capital Partners, Inc. &
10.30 Stock and Warrant Purchase Agreement dated June
24, 1996 by and between OCTuS, Inc. and Advanced
Technologies International, Ltd. ++
10.31 Warrant to Purchase Common Stock from OCTuS,
Inc. to Advanced Technologies International, Ltd. dated
June 24, 1996 ++
10.32 Agreement dated as of August 8, 1996 relating to
settlement of claims among OCTuS parties and RAS/TAG
parties. &
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION NUMBERED PAGE
------ -------------------- ----
<S> <C> <C>
11 Statements re: computation of (loss) earnings
per share and shares used in per share calculation +++
16.1 Letter dated March 13, 1996 from Price Waterhouse to
the Securities and Exchange Commission ~
27.1 Financial Data Schedule
</TABLE>
* Incorporated by reference from the Company's Form S-1, as amended,
bearing the SEC registration number 33-51862, which was declared
effective January 15, 1993.
** Incorporated by reference from the Company's Annual Report on Form
10-KSB for the calendar year ended December 31, 1993.
+ Incorporated by reference from the Company's Post-Effective Amendment
No. 1 on Form S-3 to Form S-1, bearing the SEC registration number
33-51862, which was declared effective January 6, 1995.
# Incorporated by reference from the Company's Annual Report on Form
10-KSB for the calendar year ended December 31, 1994 filed with the SEC
April 17, 1995.
+++ Incorporated by reference from the Company's amended Annual Report on
Form 10-KSB/A for the calendar year ended December 31, 1994 filed with
the SEC July 6, 1995.
! Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1995 filed with the SEC
November 13, 1995.
~ Incorporated by reference from the Company's Form 8-K filed with the
Securities and Exchange Commission on March 12, 1996.
& Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1996 as filed with the SEC on
March 31, 1997.
++ Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the period ended June 30, 1996 filed with the SEC on August
12, 1996.
